Nov. 15 (Bloomberg) -- European stocks dropped to a two-month low as U.S. President Barack Obama said Bush-era tax cuts
for high earners should expire at the start of 2013 and the euro
area entered its second recession in four years.

The Stoxx Europe 600 Index slid 1 percent to 265.52 at the
close in London. The equity benchmark briefly fell below its
closing level on Sept. 5, the day before the European Central
Bank announced that it would buy the debt of countries that
asked for its help. The gauge has still rallied 14 percent from
this year’s low on June 4.

“The fiscal-cliff issue is more about increasing taxes and
not about reducing spending,” said Andreas Nigg, head of equity
and commodity strategy at Vontobel Asset Management in Zurich.
“Even if a compromise on the cliff is found, it most likely
won’t be until December, leaving November vulnerable.”

The Stoxx 600 has lost 3.4 percent since the re-election of
President Barack Obama on Nov. 6 as investors turned their
attention to the U.S. fiscal cliff, the $607 billion of tax
increases and spending cuts that automatically come into force
at the beginning of next year.

Tax Increases

Obama said yesterday that voters want to cut the budget
deficit by imposing higher taxes on the wealthy and reducing
spending. The president reiterated his call for Congress to pass
an extension of the Bush-era tax cuts for the first $200,000 of
annual income for individuals and $250,000 for married couples.
Speaking at a White House news conference, he said the rates on
earnings above those levels should rise when the cuts expire at
the end of the year.

A report from the Labor Department showed that claims for
unemployment benefits jumped to 439,000 last week from 361,000
in the previous week. That exceeded the median estimate in a
Bloomberg survey.

A separate release today showed that manufacturing in the
New York region contracted for a fourth straight month in
November. The Federal Reserve Bank of New York’s Empire State
index, which covers the city, northern New Jersey and southern
Connecticut, climbed to minus 5.2 from minus 6.2 in October.
Economists had forecast the measure would drop to minus 8.

Unemployment Claims

A report in Luxembourg showed that the combined economy of
the 17-nation euro area contracted in the third quarter. Gross
domestic product fell 0.1 percent, matching the median forecast
of 44 economists in a Bloomberg News survey. It shrank 0.1
percent in second quarter. The second successive quarter of
negative growth means that the economy has entered a recession.

“The euro zone as a whole has slipped back into
recession,” Nicholas Spiro, managing director of Spiro
Sovereign Strategy in London, wrote in an e-mail. “Europe’s
economic downturn has not only deepened, it has also broadened
with the core of the euro zone now much more affected. The bleak
economic data out of Europe will further undermine sentiment.”

Zurich Insurance

Zurich Insurance declined 3.9 percent to 223.10 Swiss
francs. Third-quarter profit slumped 62 percent after the
insurer wrote off $550 million following a review of its
general-insurance business in Germany. Net income of $477
million missed the average analyst estimate of $707.5 million.

SBM Offshore sank 13 percent to 8.69 euros, Man Group slid
5.7 percent to 73.75 pence and GAM Holding AG slumped 6.8
percent to 11.75 francs after MSCI removed the shares from some
of its indexes, meaning funds that track the equity gauges will
have to sell their shares. The changes will be implemented on
Nov. 30 at the close.

The shares of SBM also tumbled as the company said it won’t
meet its 2012 revenue forecast of $4 billion.

Davide Campari-Milano SpA, the maker of Cinzano wine,
slipped 4.3 percent to 5.48 euros and John Wood Group Plc, the
U.K. oil-services company active in Africa and the Middle East,
slid 5.9 percent to 790.5 pence. Fuchs Petrolub AG sank 5.5
percent to 50.87 euros. Exane BNP Paribas had predicted that
MSCI would add the companies to its indexes.

H&M, Gategroup

H&M fell 3 percent to 213.10 kronor. Sales at stores open a
year or more slid 5 percent last month, the company said in a
statement. Richard Edwards, an analyst at Citigroup Inc. in
London, had forecast sales would be unchanged.

Air France-KLM Group plunged 8.5 percent to 6.55 euros.
Europe’s second-biggest airline by sales said it will complete
the purchase of 25 Airbus SAS A350 planes in the first half of
next year after delaying a contract because of arguments over
engine maintenance.

Gategroup Holding AG plunged 6.8 percent to 24 francs as
the airline-catering business said nine-month net income fell to
16.9 million francs ($18 million) from 43.1 million francs a
year earlier.

Natixis slumped 5.7 percent to 2.41 euros after Exane cut
the stock to neutral, the equivalent of hold, from outperform.
The brokerage said that financial results will probably cause
analysts to lower their estimates.

Repsol SA gained 3.5 percent to 15.76 euros. Spain’s
Foreign Minister, Jose Manuel Garcia-Margallo, said his
government may soon reach an agreement with Argentina over the
expropriation of YPF, Repsol’s unit in the Latin American
nation.